Widely read:
Aditya Roy/AI-Generated Image
Many years ago, back in 2008, we all learned a new word, 'subprime'. And along with learning, we also learned how this term led to the significant crash in the Indian stock markets. We also learned far more than we needed about how the housing loans business in America worked or didn't work. And while stock prices collapsed, we had an intense firsthand experience of the interconnectedness of the world. We further went on to learn about participatory notes and how FIIs bring money into our capital markets.
Even today, worrying has almost become a permanent state of mind for many individual investors. They seem to be in a state of mind in which investing in stocks has become like working in a bomb-disposal squad. You don't know when some new and previously unimagined issue will explode. Investors of all types and sizes seem to exist in a permanent state of nervousness. Stock prices and indices seem to exist in a state of exaggeration where every bit of information produces either an upward or a downward move that is out of proportion to the real significance of that information.
While there are many reasons for the stock market's hyper-reactive mode, the state of fear that individual investors exist in seems to be directly correlated to the attention they pay to the financial media. This is especially true of those who pay incessant attention to the business TV channels.
Going over the events of 2008, it seems clear to me that the participatory notes issue created fear, doubt, and volatility. These reactions stemmed from how the media reacted to it the first day when SEBI announced its draft regulations. Soon after the announcement, almost instantly, we were deluged with gloom-and-doom TV shows that concluded that basically, the stock markets were over. The doomsday pronouncements continued through the night, and by the time the stock markets were about to open the next morning, it was a foregone conclusion that there would be a massive crash as soon as they opened.
Now, I'm not saying that the actual TV coverage caused the crash, but it certainly contributes to the general react-first-and-think-later-if-at-all attitude that investors who watch TV to gain wisdom about the stock markets absorb. I think the problem lies in the very idea of TV coverage of the stock markets. I can recognise this clearly because sometimes I, too, am guilty of this attitude. By its very design, television news is committed to the idea that short-term, headline-worthy events and their impact matter to stock investors. And since television is a mass medium, the implicit message is that the short-term events matter to all investors, and if you are an investor, you must be glued to the news minute-to-minute and must be prepared to react at a minute's notice.
Nothing could be further from the truth. My profession has made me familiar with the investing problems of a large number of people, and I know for a fact that most such problems arise out of actions taken (or not taken) over months and years. Solving these problems also needs actions that need to be sustained over similar periods.
Don't let the permanent excitement of television news anchors fool you – being a good investor is not about speed but about careful thought and measured action. Not watching television news is fast becoming a basic prerequisite of being an intelligent investor.
Also read: Panic and sudden meltdowns
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